Was GM-Chrysler rescue a blank check?

WASHINGTON  To hear President Barack Obama's account of the government's rescue of General Motors and Chrysler, you might think the Bush administration handed the automakers a big blank check — billions of dollars in loans with no strings attached.

Obama, defending his administration's relations with the business community on Monday, said the White House knew the bailout of GM and Chrysler would be unpopular with the public but was crucial to preserving 1 million jobs. He said his administration forced the auto companies to make drastic changes in return for the money, unlike his predecessor.

"Now keep in mind the previous administration had been helping them, giving them billions of dollars, and just asking nothing in return," Obama said in a CNBC town hall meeting. Not exactly.

President George W. Bush's administration, only weeks before leaving office, gave GM and Chrysler $17.4 billion in loans after legislation to speed loans to the companies failed in Congress. The Dec. 19, 2008, terms signed by GM and Chrysler required them to reduce their debt levels, negotiate wage and benefit cuts for auto workers and submit detailed restructuring plans by Feb. 17, 2009, showing a path to "long-term viability, international competitiveness and energy efficiency."

By the end of the Bush administration, both companies were running out of money and there was no time for drastic restructuring. In all likelihood, forcing the companies into bankruptcy in December 2008 would have led to liquidation, making the Bush loans a lifeline to keep the companies afloat and buy more time for an overhaul.

Some critics have questioned whether the Bush requirements were tough enough. The loan terms instructed the companies to file restructuring reports by March 31, 2009, including "any deviations from the restructuring targets." That was to include an explanation why failing to meet the specific terms would "not jeopardize the borrower's long-term viability."

But the companies still faced a looming checkmate: The Bush loans gave the Obama administration the ability to recall the loans if the conditions weren't met, which would have essentially forced GM and Chrysler into bankruptcy.

"We knew that we were the front part of the arrangement and that we would not be there to enforce the terms of the loan," said Keith Hennessey, a former Bush economic adviser. "Our team wrote the terms of the loan to be tightly binding on the firms and specifically that the loans had to be repaid to the Treasury unless the conditions were met."

The Obama administration pumped billions more into the car makers but gained concessions from company stakeholders and pushed GM and Chrysler through quick bankruptcies last year.

Both companies have shown signs of a comeback. GM has posted two straight profitable quarters and is expected to conduct an initial public offering later this year that would help the U.S. reduce its 61 percent stake in the company. Chrysler, placed under control of Italian automaker Fiat, has narrowed its losses and is considering a public stock offering sometime in 2011.

Obama and White House officials have made similar claims about the auto bailout before.

In a July 30 visit to a GM plant, Obama described three options to address the near GM and Chrysler collapse. "Option number one was to keep on doing what the previous administration had been doing, which is basically give about a billion dollars a month to the auto industry, but not really ask for any kind of change that would get it on the right track," Obama said.

White House chief of staff Rahm Emanuel said in a June interview with ABC News' "This Week" that "in the case of General Motors, the prior administration wrote a check without asking any conditions of change." Austan Goolsbee, the new chairman of the White House Council of Economic Advisers, said in a Fox News Sunday interview in June that the White House was confronted with the distressed automakers "because somebody else kicked the can down the road."

In his new book, "Overhaul," Steven Rattner, who led Obama's auto task force, credits the Bush team for giving the incoming auto task force "a little breathing room" to restructure the companies and for providing a framework of "expected sacrifices that paved the way for our demands for give-ups from the stakeholders."